Markets rise after Federal Reserve hits pause again on rate hikes

US markets soared higher Wednesday, rebounding after a dismal October and three straight months of losses.

The Dow rose by 221 points, or 0.7%, in Wednesday trading. The S&P 500 hit a session high, and was up 1.1%. The tech-heavy Nasdaq Composite was 1.6% higher.

The Federal Reserve said it would keep interest rates between 5.25% and 5.5%, and amended language in its post-meeting statement to say that “economic activity expanded at a strong pace in the third quarter.” Previously, Fed officials wrote that the economy had grown at a "solid pace."

Fed Chair Jerome Powell said that he would not rule out another rate hike at the Fed's next meeting in December, but Wall Street seemed to brush off the fear of more economically painful hikes.

In a note to investors, Whitney Watson global co-head and co-chief investment officer of fixed income at Goldman Sachs Asset Management wrote that "the economy’s resilience has not stalled labor market rebalancing or revived wage and price pressures, suggesting disinflation will progress and indicating that the Fed will likely keep its policy unchanged into 2024."

Treasury yields, meanwhile, slumped to 4.76% on the Fed news.

In corporate news, shares of semiconductor company AMD closed 9.7% higher after the company reported strong third-quarter earnings results.

Shares of CVS dropped 0.4% even after the health care company reported an earnings beat.

WeWork plummeted by more than 47% as reports of a possibly imminent bankruptcy broke.

The Federal Reserve chose not to raise its key interest rate on Wednesday, but its benchmark lending rate remains at its highest level in 22 years.

Given that the Fed influences — directly or indirectly — interest rates on financial accounts and products throughout the US economy, that means savers and people with surplus cash still have many opportunities to get a far better return on their money than they've had in years — and even more importantly, a return that outpaces the latest readings on inflation.

Here are low-risk options to get the best yield on funds you plan to use within two years, and also on cash you expect to need within the next two to five years.

Read more here.

US markets jumped higher on Wednesday afternoon after the Federal Reserve announced it would keep interest rates unchanged for the second meeting in a row.

The Dow soared 260 points, or 0.8%. The S&P 500 gained 1.1% and the Nasdaq Composite was up 1.6%.

While Fed Chair Jerome Powell emphasized in his press conference after the announcement the requirement that financial markets would need to be persistently tightening to satisfy policymakers, investors seemed to be buoyed by his tone.  

Leading the market higher were tech stocks, with information technology stocks outperforming the rest of the market. Shares of semiconductor company AMD were 9.3% higher and Nvidia was up by 3.5%.

While Federal Reserve Chair Jerome Powell spent a good chunk of Wednesday's press conference answering reporters' questions about what elevated yields mean for the central bank, yields basically said, "You might want to think again!"

After Powell finished speaking, the yield on the 10-year Treasury hit an intra-day low of 4.755%. That's 120 basis points lower than where the yield opened on Wednesday.

Although he didn't outright say it, many investors appeared to take Powell's remarks as yet another sign that the central bank has finished hiking interest rates.

In addition to Powell's remarks, news from earlier today that the Treasury Department wouldn't be auctioning off as much debt as investors feared ignited the fall in bond yields.

Federal Reserve Chair Jerome Powell said Wednesday he likes what he's seeing on the wage growth front: a steady and gradual easing.

"Wage increases have really come down significantly over the course of the last 18 months, where they are substantially closer to a level that would be consistent with 2% inflation over time," Powell said, noting that a variety of gauges have shown similar trends.

Data released earlier this week showed that the Employment Cost Index, a closely watched measurement of pay and benefits, rose 1.1% during the third quarter from the quarter before, according to the Bureau of Labor Statistics. That's up a touch from the second quarter's 1% growth rate.

Annually, however, there's a much clearer picture of slowing wage gains. The latest ECI rose 4.3% on a year-over-year basis, which was down from 4.5% the quarter before and 4.8% in the first quarter.

"If you look back a couple of quarters, it was much higher, came down substantially in June, and then the September reading was more level than the June reading," Powell said. "So, in a way, it was validating and very close to our expectations internally, too."

Still, wage growth is running at a quicker pace than it did pre-pandemic (from 2015 to 2019, BLS data shows the ECI with an average growth rate of 2.47%).

"In my thinking, it's not the case that wages have been the principal driver of inflation so far," he said. "I do think it is fair to say as we go forward, as monetary policy becomes more important relative to supply-side issues I talked about in the unwinding of the pandemic effects, it may be that the labor market becomes more important over time, too."

Even though the Federal Reserve chose to hold off on an interest rate hike for the second straight month, Fed Chair Jerome Powell dashed any hopes for a rate cut in the near future.

At the Fed's post-meeting press conference, Powell said the Fed's monetary policy committee "is not thinking about rate cuts right now at all."

"We are still very focused on the first question, which is, have we achieved a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time," he said.

The idea of a future interest rate cut doesn't come up in meetings right now, Powell said.

After the Fed is confident that it has successfully tamped down inflation, Powell said the committee will then have to deliberate how long to keep interest rates elevated before they begin considering rate cuts.

After the Federal Reserve's decision to hold interest rates steady on Wednesday, traders are predicting rate hikes will be off the table for the rest of this year.

According to the CME FedWatch tool, investors who trade fed fund futures contracts estimate there is a higher than 70% chance that interest rates will stay the same at the Fed's next meeting, which concludes on December 13.

However, Fed Chair Jerome Powell said Wednesday that future interest rate decisions haven't been made yet.

"We didn't talk about making a decision in December today," Powell said at the Fed's post-meeting press conference. "The idea it would be difficult to raise again after stopping for a meeting or two is just not right."

For now, traders are betting that interest rates will hold steady for the first few months of 2024, as well.

The US economy remains resilient for now, but events such as the Israel-Hamas war and broader uncertainty — both globally and domestically — present "plenty of risk," Federal Reserve Chair Jerome Powell said Wednesday.

War, geopolitical instability, widescale labor strikes and a potential US government shutdown are among "significant issues" that could affect the US economy, Powell acknowledged during a press conference with reporters following the Fed's policymaking meeting.

"Our job is to monitor those things for economic implications," Powell said. "The [United Auto Workers union] strike appears to be coming to an end; oil prices have flattened out ... another one is the possibility of a government shutdown — we don't know about that one. So, there is plenty of risk out there."

Still, Powell said his eye is on the bigger picture of a "strong economy, strong labor market" and the Fed making progress on inflation.

"We are very focused on getting confident that we have achieved the stance of monetary policy that is sufficiently restrictive," he said. "That is really our focus."

Financial conditions are getting worse for Americans, Fed Chair Jerome Powell said Wednesday. Borrowing costs are higher, and the housing market is effectively frozen.

So you'd think Powell would say a recession is around the corner.

Not so fast.

"This has been a resilient economy. It has been surprising in its resilience," he said.

Previewing the Fed's minutes from its monetary policy meeting that concluded today, Powell said the Fed did not factor in a recession in the near future.

"It would be hard to see how you would do that if you look at the activity we have seen recently, which is not really indicative of a recession in the near term," Powell said.

The Fed releases its minutes three weeks after each policy meeting.